Napster, the embattled online song-swapping company, is staring into the abyss after first its chief executive, and then its founder, jumped ship.

The move leaves the iconic firm struggling for funding and - according to some insiders - on the verge of filing for bankruptcy.

Its service has been offline since last July, after a court ruled that the technology it popularised to allow internet users to swap digital music for free was breaching record companies' copyright.

Since then it has been struggling to find a legitimate business model that will work and will persuade the media companies to allow it to license their material.

Meanwhile, the five major record labels have pressed ahead with their own subscription-based services. Take-up of these services has been disappointing, however.

Room at the top

Konrad Hilbers, the departing chief executive, was parachuted into Napster in July 2001 by German media giant Bertelsmann, which has been acting as a white knight for the company.

But after the board turned down a buy-out offer thought to be worth as much as $30m from Bertelsmann earlier this year - the company had already advanced Napster about $85m in loans - Mr Hilbers said enough was enough.

"I am convinced that not pursuing the offer is a mistake and it will lead the company to a place where I don't want to lead it," he told colleagues in a final e-mail.

In April, 30 of its 100 or so employees were laid off, and the company is now promising to cut costs further.

Two down

Shortly after Mr Hilbers' decision was made public, it emerged that Shawn Fanning - the man who invented the software behind the company - was also on the way out.

Mr Fanning founded the company at college in 1999, but has been excluded from front-line management for some time.

His uncle, John Fanning, remains on the board, but has little hopes for the company's survival.

The two other remaining members of the board were voted off by shareholders in March, but a court in the US state of Delaware has now reinstated them.

The two, John Hummer and Hank Barry, are said to want bankruptcy, aiming to sell the company's assets to Bertelsmann.

"This was the last hope for the company," John Fanning said after the court ruling was announced.

Missed opportunities

The resignations came as little surprise to many industry watchers, which had long feared that heavy handed approach given to Napster threatened the firm's existence.

"Napster has been paralysed for nearly a year by unreasonable demands from the courts on the one hand, and the threat of hundreds of millions of dollars in potential damages from record labels on the other," said Aram Sinnreich, senior analysts at Jupiter Research.

The record labels were "the ones truly responsible" for Napster's plight "for refusing to relent from their demands for potentially crushing damages", Mr Sinnreich said.

Yet the record companies had missed out on the "the many opportunities for marketing, sales, and distribution that a legally sanctioned Napster would have offered", he added.

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The BBC's Theo Leggett
"His departure [Mr Hilbers] has left many analysts wondering whether the company can survive"